New Zealand's a2 Milk says first half net profit jumps 150 pct

Specialty dairy company A2 Milk has posted a record half-year profit on the back of surging demand for its infant formula.

Announcing the deal, Fonterra CEO Theo Spierings and a2MC Managing Director and CEO Geoffrey Babidge said the partnership is created to generate returns for both companies by growing demand in both local and worldwide markets for products using a2MC's brand strength and capabilities.

The Australian arm of Fonterra will set up an A2 milk pool to service its nutritional product range which is produced from its Darnum factory in Gippsland.

Under the agreement, Fonterra would supply milk free from a protein that a2 says causes gut problems in some milk drinkers, while the diary cooperative would obtain exclusive sales rights into some markets in Southeast Asia and the Middle East up to a specific volume.

a2 also said it had sealed a supply agreement with New Zealand dairy co-operative Fonterra.

The company's net profit for the six months ended December was $98.5 million, compared with last year's $39.4m.

A2 Milk Co Ltd said on Wednesday it would work with milk supplier Fonterra Co-operative Group in supply, distribution, sales and marketing in selected markets. Fresh milk revenues rose by around 3% during the half, and a2's market share in this segment is now 9.5%.

As part of the partnership, Fonterra will now begin conversations with its farmers to source an A2 milk pool for a2MC products in New Zealand, which is meant to significantly expand over time to help meet the growing demand for a2MC products.

Babidge said the geographic diversification of production Fonterra can offer was seen to be a benefit, though said the company doesn't have an issue of limitation by supply in any of its markets.

Fonterra farmers will build up herds of A2 cows under a new deal with A2 Milk Company.

"We continue to see a strong future for dairy based on our existing range of products, including recent additions such as organic, low-lactose and high protein milk choices that consumers seek out for a premium".

A2 managing director Geoff Babidge said he expects continued revenue growth in nutritional products in Australia, New Zealand and China in the second half, along with further growth in fresh milk in the United States.

A2's board didn't declare an interim dividend, and said it was continuing to consider implementing a dividend policy along with an on-market share buyback as it evaluates the best use of its available capital.